How did you come to choose your research topic?
I chose this research topic because I wanted to understand more about China’s role as an increasingly important innovator and outbound investor. I studied three issues that are central to innovation, industry development, and outbound investment, in the hope that my research would contribute to the relevant literature and policy discussions. Each chapter of the dissertation addresses a different aspect of China’s economic development and sheds some light on the underlying factors.
Can you tell us more about each of these chapters?
Chapter 1 examines the relationship between market size and pharmaceutical innovation in China. This link is of crucial importance to policy discussions such as drug price controls and health insurance reimbursement, and it is mostly demonstrated in the United States, the largest pharmaceutical market in the world. Testing this causal link in the Chinese context would be interesting as both pharmaceutical market size and innovation in China are on the rise. Following Acemoglu and Linn (2004), the chapter relies on the exogenous changes in market size driven by demographic and income shifts to test the empirical relationship. It builds up an innovative disease-level dataset spanning from 1993 to 2017 and estimates the elasticity of pharmaceutical innovation with respect to market size for different types of innovators. It showcases the innovation dynamics in an emerging economy where domestic firms are exhibiting the highest degree of responsiveness to market size changes. The findings of the paper are very relevant to health policy discussions in China. For instance, they suggest that the room for drug price reduction might be small before it has a negative impact on innovation, unless it is combined with some compensated measures such as an increased purchase volume.
Chapter 2 studies the impacts of industrial policy on firm innovation. The policy under examination is “Made in China 2025”, which was launched in 2015 to upgrade the technologies in the manufacturing sector and enhance China’s overall innovation capacity. My study is motivated by a revived interest in industry policies in the light of growing scepticism towards laissez-faire capitalism after the global financial crisis, the need for green innovation to address climate change challenges, as well as the increasing emphasis on strategically critical sectors as globalisation is facing headwinds. The chapter uses a difference-in-differences strategy and assigns treatment status to companies using listed firms’ (2010–2019) business scope information rather than their industry classification. It demonstrates a positive policy impact on firms’ invention patent, which is the most innovative type of patent. It also identifies competition as an effective mechanism of influence, which provides support for functional policies that increase market competition.
Chapter 3 investigates whether the tax rates related to foreign and domestic operations affect multinational firms’ decision to invest in tax havens. It highlights China’s high exposure to tax havens in outbound investment and identifies a gap in research: China is largely missing in the international profit shifting literature, and most studies on Chinese OFDI do not properly address the role of tax havens. Using data on foreign affiliates of China-listed firms (2008–2021), it identifies multinational firms’ overseas investment locations, divides these locations into tax havens and non-tax havens, and carefully considers different ways of including the Hong Kong Special Administrative Region of China in the analysis. The chapter finds that tax rates on non-tax-haven foreign operations positively affect the likelihood of manufacturing firms investing in tax havens, which points to the importance of international cooperation in combating multinational firms’ aggressive tax-planning practices. It also calls for more domestic cooperation between agencies in collecting multinational firm data, which would greatly facilitate future research in this area.
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Rui Ma defended her PhD thesis in Development Economics on 15 October 2024. Associate Professor Martina Viarengo presided over the committee, which included Professor Jean-Louis Arcand, Thesis Director, and, as External Reader, Patrick Plane, Directeur de recherches émérite, CNRS, CERDI-Université Clermont Auvergne, France.
Citation of the PhD thesis:
Ma, Rui. “Three Essays in Development Economics.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2024.
A short abstract of the PhD thesis is available on this page of the Geneva Graduate Institute’s repository. As the thesis itself is embargoed until October 2027, please contact Dr Ma for access.
Banner image: Shutterstock/TexBr.
Interview by Nathalie Tanner, Research Office.